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Jan. 14 --In its decision gutting the Federal
Communications Commission's net neutrality rules, the U.S. Court of Appeals for
the District of Columbia Circuit managed to hand the agency a small but
significant victory.

The court held, essentially, that section 706 of
the Telecommunications Act of 1996 can serve as a source of authority
for the FCC to regulate “broadband providers' treatment of Internet traffic”
(Verizon Commc'ns Inc. v. FCC, D.C. Cir., 11-1355, 01/14/14; see
related story).

“It is the first recognition by a court that the FCC has
the power to protect the Internet under the existing provisions of the Act,”
Pantelis Michalopoulos, a partner at Steptoe & Johnson LLP, who gave oral
argument last September in defense of the FCC's Open Internet Order on
behalf of Public Knowledge, Vonage Holdings Corp., and the National Association
of State Utility Consumer Advocates, told Bloomberg BNA. “It is an important
decision.”

In the end, however, the court concluded that the FCC's Open
Internet rules amounted to “common carrier” regulation, and since the agency in
2002 had classified broadband Internet access service as a non-common carrier
“information service,” rather than as a common-carrier “telecommunications
service,” the rules themselves were invalid. In practical effect, what this
means is that every company that provides a pipeline through which consumers
gain access to the Internet, such as Comcast Corp., Verizon Communications
Inc., and AT&T Inc., could begin blocking websites or treating their own
web content better than that of rivals. It also means that the FCC could
theoretically become a more effective Internet regulator.

New
Jurisdiction Over Broadband Communications?

“The ruling could be read
to add a whole new title to the Communications Act, giving the FCC jurisdiction
over 'broadband communications,' ” Geoffrey Manne, executive director of the
International Center for Law & Economics, told Bloomberg BNA. “All the FCC
has to do now is demonstrate that [its] regulations are designed to encourage
the deployment of 'advanced telecommunications' capability. And rest assured
that they [the FCC] will try to bring the floor of permissible activity up to
as high as they can … as long as they convince three judges that it doesn't
constitute common carriage.”

Berin Szoka, president of the think-tank
TechFreedom, which had filed an amicus curiae brief in the case along with the
Competitive Enterprise Institute, the Cato Institute, and the Free State
Foundation, said the FCC could even potentially do this without “promulgating
regulations,” but by taking action in a “sly,” case-by-case way.

“Section 706 covers 'advanced telecommunications,' which is pretty broad,
and potentially subject to expansion in the future,” Szoka told Bloomberg BNA.
“The ruling could give the FCC more leeway now to regulate not just broadband
service providers, but the Internet itself.”

After Long, Hard Fight, a
Win for FCC on 706

For the FCC, enforcing the concept of what is called
network neutrality has tested the limits of the agency's authority.

The
333-page Communications Act of 1934, as amended by the Telecommunications Act
of 1996, mentions the word “broadband” three times, and the word “Internet”
only 10. The 128-page Telecommunications Act itself mentions “broadband” only
once.

However, Section 706(a) of the Telecommunications Act directs the
FCC to “encourage the deployment on a reasonable and timely basis of advanced
telecommunications capability to all Americans … by utilizing, in a manner
consistent with the public interest, convenience, and necessity, price cap
regulation, regulatory forbearance, measures that promote competition in the
local telecommunications market, or other regulating methods that remove
barriers to infrastructure investment.”

Under Section 706(b), the FCC is
required to regularly “determine whether advanced telecommunications capability
is being deployed to all Americans in a reasonable and timely fashion” and take
“immediate action to accelerate deployment of such capability by removing
barriers to infrastructure investment and by promoting competition in the
telecommunications markets.”

The FCC based its authority to enact net
neutrality rules, in part, on sections 706(a) and 706(b). In essence, the
agency's legal argument was this: If internet service providers started
blocking or slowing websites, then Americans' perception of “advanced
telecommunications capability” may change, and fewer consumers will pay the
$50-plus per month to continue subscribing to the service. And that could
create “barriers to infrastructure investment” and “deployment.” Put another
way, if demand for broadband suddenly begins to decline, fewer and fewer
companies will deploy broadband infrastructure in the areas that need it the
most, like rural America.

Throughout the case, Verizon had argued that
neither sections 706(a) nor 706(b) conferred any authority on the commission to
regulate broadband ISPs' handling of Internet traffic.

The court did not
agree.

'Reasonable Interpretation.'

In its final decision,
which was signed by two judges and joined in part by a third, the D.C. Circuit
said that the “commission's current understanding of section 706(a) as a grant
of regulatory authority represent[s] a reasonable interpretation of an
ambiguous statute.”

“Of course, we might well hesitate to conclude that
Congress intended to grant the Commission substantive authority in section
706(a) if that authority would have no limiting principle,” Judge David S.
Tatel wrote for the majority. “The commission has identified at least two
limiting principles inherent in Section 706(a). First, the section must be read
in conjunction with other provisions of the Communications Act, including, most
importantly, those limiting the commission's subject matter jurisdiction to
'interstate and foreign communication by wire and radio.' Any regulatory action
authorized by Section 706(a) would thus have to fall within the commission's
subject matter jurisdiction over such communications--a limitation whose
importance this court has recognized in delineating the reach of the
commission's ancillary jurisdiction. Second, any regulations must be designed
to achieve a particular purpose: to 'encourage the deployment on a reasonable
and timely basis of advanced telecommunications capability to all Americans.'
Section 706(a) thus gives the commission authority to promulgate only those
regulations that it establishes will fulfill this specific statutory goal--a
burden that … is far from 'meaningless.'”

As for 706(b), the court said
the commission has “reasonably interpreted Section 706(b) to empower it to take
steps to accelerate broadband deployment if and when it determines that such
deployment is not 'reasonable and timely.'”

“As with Section 706(a), it
is unclear whether section 706(b), in providing that the commission 'shall take
immediate action to accelerate deployment of such capability by removing
barriers to infrastructure investment and by promoting competition in the
telecommunications market,' vested the commission with authority to remove such
barriers to infrastructure investment and promote competition,” the court
explained. “But the provision may certainly be read to accomplish as much, and
given such ambiguity we have no basis for rejecting the commission's
determination that it should be so understood. Moreover … nothing in the
regulatory background or the legislative history either before or after passage
of the 1996 Telecommunications Act forecloses such an understanding. We think
it quite reasonable to believe that Congress contemplated that the commission
would regulate this industry, as the agency had in the past, and the scope of
any authority granted to it by section 706(b)--limited, as it is, both by the
boundaries of the commission's subject matter jurisdiction and the requirement
that any regulation be tailored to the specific statutory goal of accelerating
broadband deployment--is not so broad that we might hesitate to think that
Congress could have intended such a delegation.”

'Significant
Limitations' Seen

Though the court's ruling could be seen as an
affirmation of the FCC's regulatory authority over broadband ISPs, former FCC
Commissioner Robert McDowell said he sees “significant limitations.”

Among the options left now for the FCC are: (1) reclassifying broadband as a
common carrier “telecommunications service”; (2) petitioning for en banc
rehearing; (3) appealing the decision to the Supreme Court; or (4) rewriting
the rules using a different rationale under section 706.

Commenting on
the FCC's fourth and final option, McDowell pointed out that in its April 2010
ruling in Comcast Corp. v. FCC, 2010 BL 76102, 390 U.S. App. D.C.
111, 600 F.3d 642, 49 CR 1226, D.C. Cir., No. 08-1291, 04/06/10, the D.C.
Circuit deferred consideration of the agency's assertion of Section 706
authority. It noted in particular that, in 1998, the FCC itself had concluded
that Section 706 “does not constitute an independent grant of authority,” but
rather a direction for “the commission to use the authority granted in other
provisions … to encourage the deployment of advanced services.” According to
the Comcastcourt, that 1998 decision and the FCC's 2008 Comcast
decision were clearly contradicted one another. Despite handing a defeat to the
FCC in Comcast, the court left the door open for the agency to try again.

“In Comcast, the court said 'you didn't explain yourself very well.
You might have some authority under 706, but you need to come back and explain
it better,'” said McDowell, who as commissioner dissented from the FCC's
decision to enact net neutrality rules.

“We have a similar ruling this
time, and it's an extremely narrow path to walk,” he added, commenting about a
potential new 706 approach. “There's no guarantee that the FCC would win in
court for a third time.”

To contact the reporter on this story: Paul
Barbagallo in Washington at pbarbagallo@bna.com

To contact the editor
responsible for this story: Bob Emeritz in Washington at bemeritz@bna.com

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